KUALA LUMPUR (May 18): Progress on 1Malaysia Development Bhd’s (1MDB) mega projects Tun Razak Exchange (TRX) and Bandar Malaysia is being hindered by financing difficulties, says Deputy Finance Minister Datuk Johari Abdul Ghani.

Johari said the troubles faced by 1MDB are deterring banks from giving out loans to the state investment fund’s project partners seeking to move the projects forward.

“Right now the issue is … you know TRX, we have a joint venture with Land Lease (Australia-listed property developer), they cannot move because the project partners cannot get financing because of the 1MDB issue.

“In Bandar Malaysia, [it is] also the same thing. So it is very difficult for the local or international banks to finance when you have issues at 1MDB,” he told reporters yesterday after launching the Malaysian Directors Academy (Minda) 2.0.

Johari said this was why Parliament’s Public Accounts Committee (PAC) had recommended that 1MDB’s assets and subsidiaries be transferred to the Minister of Finance Inc (MoF Inc). MoF Inc fully owns 1MDB.

Lend Lease formed a 60:40 joint venture with 1MDB in March last year to develop a A$2.8 billion (RM8 billion) project at TRX, with Lend Lease taking the majority stake. Dubbed The Lifestyle Quarter, the development would span over 17 acres (6.88ha), comprising a shopping centre integrated with TRX’s multi-layer central park, as well as three residential towers and a hotel.Construction was reportedly scheduled to start late last year.

1MDB also announced last year that it would sell 60% of its equity interest in Bandar Malaysia Sdn Bhd to consortium IWH-CREC Sdn Bhd for RM7.41 billion. The IWH-CREC consortium is a 60:40 joint venture between Iskandar Waterfront Holdings Sdn Bhd (IWH) and China Railway Engineering Corp.

Johari said the transfer of 1MDB assets to MoF Inc is on track. “We are finalising the agreement,” he said. He also said once 1MDB’s directors resign on May 31, a caretaker board comprising MoF Inc officials will take over the helm of the entity.

MoF Inc said on March 7 that 1MDB will transfer the ownership of Bandar Malaysia Sdn Bhd, TRX City Sdn Bhd, Air Itam land and Pulau Indah land to MoF Inc following recommendations made by the PAC.The PAC had said that the transfer of all 1MDB’s assets and subsidiaries to MoF Inc would allow for closer scrutiny of the state investor’s assets and companies.

1MDB’s board of directors — comprising chairman Tan Sri Lodin Wok Kamaruddin, president Arul Kanda Kandasamy, former 1MDB chief executive officer Datuk Shahrol Azral Ibrahim Halmi, Tan Sri Ismee Ismail, Tan Sri Ong Gim Huat and Ashvin J Valiram — offered to resign on April 7. MoF Inc had also announced that the fund’s board of advisers, which is chaired by Prime Minister Datuk Seri Najib Razak, will be dissolved under the changes to the fund’s governance.

On April 25, 1MDB defaulted on an interest payment of US$50.3 million on the first issuance of a US$1.75 bond, which triggered a cross default on all its debt papers that are guaranteed by the government, including the RM5 billion sukuk due in 2039, and the RM2.4 billion Bandar Malaysia Sdn Bhd sukuk due between 2021 and 2024.

1MDB had also defaulted on an interest payment of US$52.4 million on the second issuance of a US$1.75 bond, due on May 11.

Both bonds are guaranteed by Abu Dhabi’s International Petroleum Investment Co, which settled the two interest payments that 1MDB was supposed to have paid.

* This article first appeared in The Edge Financial Daily, on May 18, 2016.